What is NFT Fusion?

MonkeyZoo NFT Fusion

The following paper is a guide to NFT Fusion, it highlights what fusion is and how it works along with the potential use cases the technology could be used for, the advantages over EVM based dynamic NFTs and the future of development.

What is NFT Fusion?

Revolutionizing Dynamic NFTs on the Chia® Blockchain

“Chia is a trademark of Chia Network, Inc. in the United States and worldwide.”

The world of Non-Fungible Tokens (NFTs) is evolving rapidly, and MonkeyZoo is at the forefront of this revolution with their ground-breaking NFT Fusion technology. Built on the Chia® blockchain, this innovative approach to dynamic NFTs is set to transform the way we think about digital assets, gaming, and the metaverse. 

NFT Fusion is a sophisticated technology developed by the MonkeyZoo project that allows for a trustless and decentralised way for combining, updating, and upgrading NFTs while maintaining on-chain provenance and the non-fungible nature of the source NFTs. This technology leverages the unique features of the Chia blockchain and introduces a new level of flexibility and functionality to NFTs. Think of NFTs being stored inside other NFTs.

Unlocking the Power of NFT Fusion

At the heart of NFT Fusion is the implementation of CHia Improvement Proposal 21 (CHIP-0021), the NFT Fusion Puzzle built on the Chia blockchain. This puzzle, written in Chialisp®, Chia’s native smart contract language, enables a trustless and decentralized method to combine, update, divide, and upgrade NFTs. The Fusion puzzle operates on Chia’s coinset model, which is similar to Bitcoin’s UTXO system but more versatile. In this model, every transaction involves spending coins (immutable objects) and creating new ones. This approach allows for parallel operations, better privacy, and more secure smart contracts. 

What makes this a true paradigm shift rather than an incremental improvement is threefold. First, it fundamentally transforms NFTs from static, isolated digital assets into dynamic, composable building blocks that maintain their provenance and uniqueness even when combined. Second, unlike existing solutions that require centralized authorities or off-chain oracles to manage modified NFT ownership, CHIP-0021 achieves this entirely through on-chain logic, preserving the core decentralized ethos of blockchain technology. Third, it solves the long-standing “composability problem” that has limited NFT utility across platforms without requiring the destruction of original assets. The result is a revolutionary framework that enables digital assets to evolve, interact, and transform while maintaining their history and value-opening entirely new possibilities for digital ownership that were previously technologically impossible

CHIP-21 Github https://github.com/Chia-Network/chips/blob/main/CHIPs/chip-0021.md

Beyond Static NFTs: The Fusion Revolution

Traditional NFTs are often criticized for their static nature and for some use cases this is essential, but as this technology develops and grows many use cases will require some form of composability. Once minted an NFT typically remains unchanged, limiting its utility and potential for evolution. CHIP-0021 shatters this limitation, introducing a dynamic element to NFTs that opens a world of possibilities and allows for NFTs to keep the underlying non fungible status while giving them composability.

• Fuse: Combine multiple NFTs to create new, more complex assets.
• Update: Modify existing NFTs to reflect changes or improvements.
• Divide: Split a single NFT into multiple components.
• Upgrade: Enhance NFTs with new features or capabilities.

These operations are not just theoretical – they’re practical, on-chain actions that can be performed securely and verifiably.

The Coinset Model: Chia’s Secret Weapon

Underpinning the Fusion Puzzle is Chia’s coinset model, a sophisticated evolution of Bitcoin’s UTXO (Unspent Transaction Output) system. In this model, transactions are conceptualized as spending existing coins and creating new ones. This approach offers several advantages including:

• Parallel Processing: Multiple transactions can be processed simultaneously, enhancing scalability.
• Robust Smart Contracts: The immutability of coins provides a solid foundation for secure smart contract execution.

The Fusion Puzzle: A Chialisp® Masterpiece

CHIP-0021 is crafted in Chialisp, Chia’s native smart contract language. This choice of language is no coincidence – Chialisp offers a unique blend of simplicity and power, making it ideal for complex operations like NFT fusion. The puzzle’s design enables a trustless and decentralised approach to manipulating NFTs, allowing for fusion, updates, division, and upgrades without relying on centralized authorities.

Chip-21 Chialisp https://github.com/trgarrett/fusion-clsp

Metadata Integration (CHIP-0015):

The fusion process extends CHIP-0015’s off-chain metadata with new properties that can be used by display services and allows digital asset data to shape the future of many industries including gaming and metaverse environments.

CHIP-15 GitHubhttps://github.com/Chia-Network/chips/blob/main/CHIPs/chip-0015.md

Security Architecture: 

The reasons for choosing the Chia blockchain to develop this technology are many and Chip-21 addresses key security concerns through the implementation of

• Ownership Proof: Requires cryptographic signatures from all input NFTs.
• Atomic Swaps: Ensures all-or-nothing P2P transaction completion.
• Immutable Contracts: Puzzle code is immutable after deployment.
• DID Verification: Mandates authorized minting.
• BLS Signature Verification: 256-bit security vs ECDSA’s 128-bit in EVM chains.
• Reorg Resistance: 32-block finality threshold.
• Formal Verification: Chialisp fusion logic formally verified.

Implications for the NFT Ecosystem

The implementation of CHIP-0021 is set to revolutionize the NFT space in many ways, and the following examples are not limited.

Dynamic Gaming Assets:

Imagine a game where your character’s NFT can fuse with weapon NFTs, upgrade its abilities, or even split into multiple characters. CHIP-0021 makes this possible, gaming assets could move seamlessly between games and the metaverse while retaining the assets history potentially transforming the gaming industry.

Evolving Digital Art

Artists can create NFTs that change over time or in response to specific triggers, opening new avenues for interactive and evolving artworks.

Flexible Metaverse Objects

In virtual worlds, objects represented by NFTs can now be more flexible and adaptable, enhancing the user experience and the functionality of digital spaces.

Efficient Asset Management

The ability to fuse, divide, and upgrade NFTs allows for more efficient management of digital assets, potentially streamlining processes in various industries. Think about the fine art world being able to fractionalise tokenized artwork in a secure decentralised blockchain environment. 

Dynamic Storytelling and Interactive Narratives

Fusion technology enables the creation of evolving NFTs that can change based on user interactions or external events. This opens possibilities for dynamic storytelling experiences where NFT-based characters or plot elements transform over time, creating unique, personalized narratives for each owner.

Fusion-Powered Virtual Identities

By combining multiple NFTs representing different aspects of a digital identity (e.g., avatar appearance, skills, achievements), users can create more complex and nuanced virtual personas. These fused identities could seamlessly transition across various metaverse platforms and games, maintaining continuity and accumulated value.

Enhanced Collaborative Creation

Fusion technology facilitates new forms of collaborative art and content creation. Multiple artists could contribute individual NFT elements that are then fused into a single, more valuable collective work. This process could lead to innovative co-creation models and revenue-sharing mechanisms.

Adaptive Digital Fashion

In the realm of digital fashion, fusion technology allows for the creation of NFT-based garments that can adapt to different virtual environments or user preferences. A single fashion NFT could transform its appearance based on the metaverse platform it’s being used in or combine with other NFTs to create unique outfit combinations.

Cross-Platform Loyalty Programs

Businesses could leverage fusion technology to create more sophisticated loyalty programs. NFTs representing rewards or status levels from different brands could be fused to unlock exclusive cross-brand experiences or benefits, fostering partnerships and enhancing customer engagement.

Dynamic Real Estate and Land Development

In virtual worlds, fusion technology enables the combination of separate land NFTs to create larger, more complex properties. This could lead to collaborative building projects and the emergence of virtual real estate development firms specializing in fusing and enhancing digital land assets.

Evolving Collectibles and Trading Card Games

Fusion opens new possibilities for collectible NFTs and digital trading card games. Cards or collectibles could be fused to create more powerful or rare items, adding strategic depth to collecting and trading. This could revolutionize the way digital collectible games are designed and played.

Modular and Upgradeable Smart Contracts

In the realm of decentralized finance (DeFi), fusion technology could enable the creation of modular smart contracts represented as NFTs. These could be combined or upgraded to create more complex financial instruments, allowing for greater flexibility and innovation in DeFi protocols.

By incorporating these additional use cases, the implications of fusion technology for the NFT ecosystem become even more far-reaching, promising a future of increased interactivity, collaboration, and value creation across various digital domains.

Key Technical Features of NFT Fusion

True On-Chain Logic

NFT Fusion’s ownership validation behaviour is governed by on-chain logic in Chialisp® puzzles. This eliminates reliance on external services, enhancing security and decentralization.

At the heart of NFT Fusion: The Singleton Puzzle

The fusion system relies on a singleton puzzle – a unique coin that cannot be duplicated – which maintains the authorized state of all locked and unlocked NFTs, controls the validation of ownership through cryptographic announcements, and enforces the rules for all fusion and de-fusion operations through its ChiaLisp code.

The fusion singleton ChiaLisp puzzle implements a state management system that governs all transitions between NFT states, using cryptographic announcements, coin spend validation, and lineage proofs to verify ownership and enforce the rules for fusion, de-fusion, and upgrade operations according to the conditions specified in the puzzle code

This implementation of CHIP-0021 represents a paradigm shift in dynamic NFT design, achieved through three key technical innovations.

1. Self-Contained State Transitions

The Fusion singleton puzzle implements state management in Chialisp, with three primary states: Empty, A Locked, and B Locked.

Each state change (fusion/de-fusion) is cryptographically verified against:

Current NFT ownership proofs through DID verification.

Puzzle-defined transitions (A Locked → B Locked for fusion, B Locked → A Locked for de-fusion).

Inter-puzzle announcements to ensure atomic transactions between the singleton puzzle and NFT components.

Lineage proof verification to maintain coin ancestry integrity.

2. Decentralized Validation Mechanism

Unlike EVM systems that require external oracles for dynamic updates (Chainlink Oracles), NFT Fusion’s validation occurs through:

• Offer File Semantics: Atomic swaps enforce transaction atomicity.
• Singleton Pattern: Guarantees unique state representation.
• Coin Set Model: Enables parallel state transitions without global storage.

This contrasts sharply with EVM’s account-based model where: Oracles can be vulnerable to centralized oracle manipulation.

3. Provenance Tracking

NFT Fusion maintains provenance through the singleton puzzle’s tracking of launcher IDs and coin relationships, validating component NFTs via cryptographic announcements and lineage proofs during fusion and de-fusion operations, while leveraging CHIP-15’s schema.org metadata standard to enable off-chain applications to recognize and display the historical relationships between fused NFTs and their components.

 Simplified structure of NFT Fusion’s Chialisp®   puzzle (Conceptual diagram)

Composability

NFT Fusion allows for the creation of complex, composable assets. For example, a game character NFT could contain other NFTs representing weapons, skins, or other attributes. This opens exciting possibilities for gaming and metaverse applications.

The fusion system achieves atomic composition through coordinated coin spends controlled by the singleton puzzle, which maintains the relationships between component NFTs by tracking their launcher IDs and current coin state, verifying these relationships through cryptographic announcements during all fusion and de-fusion operations.

MonkeyZoo’s NFT Fusion implements composability through CHIP-0021’s recursive puzzle structure.

Atomic Composition

• Parent NFTs maintain Merkle proofs of child assets.
• Composition events create new coins with embedded ownership graphs.
• Off-chain metadata relationships use schema.org and CHIP-0015.

Feature	NFT Fusion (Chia®)
State Model	Coinset based (UTXO)
Transaction Finality	1 block
Composition Depth	Recursive (theoretical ∞)
Reversibility	Native puzzle feature
Royalty Enforcement	Offer file semantics
Metadata Standard	Off-chain schema.org CHIP-0015 extensible

Gaming Implementation: Multi-Layer Asset Nesting

A practical example using MonkeyZoo’s FusionZoo: Character NFT Structure

Layer 0: Base Character (NFT A)

└─ Layer 1: Armor (NFT B)

└─ Layer 2: Hat (NFT C)

└─ Layer 3: Chest plate (NFT D)

└─ Layer 4: Weapon (NFT E)

└─ Layer 5: Enchantment (NFT F)

Technical characteristics:

• Each layer maintains independent ownership proofs.
• Partial updates possible without full recomposition.
• Royalty streams split using Chia Offers.

Reversibility

One of the most powerful features of NFT Fusion is the ability to “defuse” or reverse the fusion process in a fully decentralised manner because only the owner of the asset can reverse the fusion. This means that component NFTs can be reversed from a fused NFT, providing flexibility and preserving the value of individual components.

The reversibility feature in CHIP-0021 operates through a dual-phase Chialisp puzzle that enables atomic decomposition of fused NFTs:

1. Coin Set Ancestry Tracking

Each fused NFT maintains references to its component NFTs through coin ancestry and lineage proofs:

├─ NFT launcher IDs (stored as curried parameters)

├─ Lineage proofs (containing parent_coin_info and inner puzzlehash)

└─ Pay-to-singleton relationships

Component tracking leverages Chia’s native UTXO model and coin ancestry verification rather than explicit Merkle proofs.

1. Offer File Semantics

De-fusion requires atomic swaps using Chia’s offer file system:

Transaction flow for de-fusion:

1. User creates an offer file via wallet (offering A for B or B for A)
2. The fusion singleton validates the offer and creates:
   • Announcements for P2 singleton puzzles
   • Assertions of offer puzzle announcements
3. The P2 singleton puzzles verify singleton announcements
4. The offer puzzle facilitates atomic exchange of NFTs
5. The fusion singleton records the state change This process ensures atomic execution where all components must succeed or the entire transaction fails.

Atomic swap flow prevents partial de-fusion.

1. State Transition Validation

The puzzle verifies de-fusion eligibility through:

• Ownership proofs of fused NFT
• Royalty distribution rules

Feature	Chia de-fusion
Asset Recovery	Full component recovery
Transaction Costs	$0.0001*
State Proofs	Merkel ancestry
Royalty Enforcement	Puzzle-native
Metadata Preservation	Fully retained
Transaction Finality	1 block

 *As of February 2025

4. Upgradability

NFTs can be upgraded or updated while maintaining their provenance. This feature is particularly useful for evolving collectibles or game assets that need to change over time.

As a fused NFT can then be fused inside of another NFT the upgradability of these digital assets become infinite.

Advantages Over EVM-Based Solutions

MonkeyZoo’s NFT Fusion technology offers several advantages over traditional EVM-based dynamic NFT technologies.

Why the Chia® blockchain?

• Scalability: Chia’s architecture enables native scalability and could use a technology called secure the bag to batch transactions, and there is a future of Datalayer and Layer 2 solutions.
• Security: Ethereum has sacrificed security when moving to proof of stake to make it more energy efficient, where the Chia blockchain has been developed with the highest security whilst using a proof of space and time consensus to make it energy efficient. A good discussion on this topic was discussed by Krzysztof Pietrzak and can be found in this YouTube video conversation about sustainable blockchains. YouTube Link Krzysztof Pietrzak: Sustainable Blockchains
• Cost-Effectiveness: Transactions on Chia currently cost fractions of a cent, compared to the high gas fees often associated with Ethereum.
• Enhanced Security: Chia offers Bitcoin-level security guarantees while using a more energy-efficient consensus mechanism. It combines the battle-tested UTXO model with BLS signatures (256-bit security vs ECDSA’s 128-bit) and 32-block reorg resistance.
• True Decentralization: Chia is considered one of the most decentralized blockchains, with over 50,000 full nodes securing the network. This level of decentralization enhances security and resistance to attacks.
• Parallel Processing: Chia’s architecture supports concurrent coin spends (vs EVM’s sequential execution) and Merkle tree-based state transitions, allowing for more efficient transaction processing.
• Formal Verification: Core ChiaLisp® logic in Chia can be formally verified, adding an extra layer of security to smart contracts.
• Sustainability: Chia’s Proof of Space and Time (PoST) consensus mechanism is significantly more energy-efficient than traditional Proof of Work systems, making it a more sustainable option for long-term blockchain adoption.
• Trustless P2P Trading: Chia offer files enable direct, trustless trading between parties without the need for intermediaries or centralized exchanges. This system leverages the power of ChiaLisp, Chia’s native smart transaction programming language, to create secure and efficient P2P trades. 

Why Chip-21 dynamic NFTs?

• Asset recovery: The Chip-21 Fusion puzzle allows for complete asset recovery without the need for oracles or the burning and re-minting of assets.
• Interoperability: NFT Fusion leverages CHIP-0015 metadata standards, enabling seamless integration across gaming engines and metaverse platforms.
• On-Chain Logic: Unlike many EVM-based dynamic NFTs that rely on off-chain oracles, MonkeyZoo’s NFT Fusion technology uses on-chain logic of ownership through Chialisp puzzles, eliminating reliance on external services and enhancing security and decentralization.
• Off-chain Logic: Using off chain schema.org in Chip-15 metadata allows for a global metadata standard that can be adopted for future use cases.
• Flexibility: Chia’s overarching NFT standard (NFT1) offers features like updatable URIs, usage licenses and on-chain royalties providing more flexibility for creators and owners compared to other blockchain NFT standards.
• On-chain Royalties: Building on the back of the Chia NFT1 standard, fusion allows for fully on-chain royalties giving a new guaranteed revenue stream for technologists.
• On-Chain Provenance: With ability to embed Decentralised Identification into each NFT a creator can guarantee proven provenance without the need of any centralised service.
• On-Chain Permanence: The fusion system builds on Chia’s NFT standard which allows updating the URI’s that point to off-chain content, providing flexibility to change content references if needed, though the actual permanence of the content itself depends on the external storage solutions used rather than being guaranteed by the blockchain. This allows for the data to remain intact throughout future technical advancements 

The Future

The Road Ahead for Chip-21

As CHIP-0021 gains traction, we can expect to see a surge of innovative applications leveraging this technology. From advanced gaming ecosystems to sophisticated digital asset management platforms, the possibilities are vast and exciting. The NFT Fusion Puzzle represents more than just a technical advancement; it is a fundamental reimagining of what’s possible with digital assets. As developers and creators begin to explore its potential, we stand on the brink of a new era in blockchain technology – one where NFTs are no longer static tokens, but dynamic, evolving entities capable of reflecting the complexity and fluidity of our digital lives. The future of NFTs is not just about ownership; it’s about interaction, evolution, and unlimited potential. And with CHIP-0021, that future is now within reach.
 For the MonkeyZoo project we will continue to develop this technology making it more efficient and faster as the ecosystem advances, we are conceptually working on a V2 version of the Fusion technology that could enable DataLayer® integration for metadata and layer validation plus more in-depth support for pick and replace fusion and de-fusion to deliver even more dynamic capabilities without having to completely defuse the puzzle every time a minor change is made to the digital asset.

Conclusion

MonkeyZoo’s NFT Fusion technology represents a significant leap forward in the world of digital assets. By combining the security and efficiency of the Chia® blockchain with the flexibility and functionality of dynamic NFTs, it opens a world of possibilities for creators, gamers, and collectors alike. As we move towards an increasingly digital future, technologies like NFT Fusion will play a crucial role in shaping how we interact with and value digital assets. The MonkeyZoo project has not only developed an innovative technology but has also contributed to the broader blockchain ecosystem by implementing and showcasing the potential of CHIP-0021, CHIP-0015 and in the future CHIP-35 standards. With its focus on security, scalability, and user experience, NFT Fusion is poised to become a cornerstone of the next generation of NFT applications. As more projects and platforms adopt this technology, we can expect to see a new wave of creative and interactive digital experiences that blur the lines between the physical and digital worlds. The future of NFTs is dynamic, and MonkeyZoo’s NFT Fusion is leading the way.

Thank you for reading this paper about NFT fusion and Chip 21, if you have any questions about this paper or fusion technology you can reach out to the MonkeyZoo team at [email protected] where we are happy to answer your questions or help you implement this new technology into your projects.

Written by Tim Youngman, Founder and CEO of the MonkeyZoo project being built on the Chia Blockchain.

Dated March 1st, 2025

MonkeyZoo are building this technology on the Chia Public Blockchain and is in no way affiliated with Chia Network Incorporated.

Chia, ChiaLisp, Datalayer are registered trademarks of Chia Network, Inc. in the United States and worldwide.